Montana Department of Transportation (MDT) decertified a DBE firm after receiving a complaint from a competitor. Initially, MDT alleged that the firm was ineligible for certification because: 1) the initial certification was based on factually erroneous information and misrepresentations submitted by the firm; and 2) changes in the firm’s circumstances since certification rendered it unable to meet control eligibility standards.

Apparently, the owner sought a decertification hearing pursuant to 49 CFR 26.87(d). During the hearing MDT provided evidence that for a period of seven months (following an injury to the DBE company) a non-socially and economically disadvantaged individual had run the company in the owner’s absence.

Holding:

On appeal the DOT reversed MDT decision because MDT had failed to evaluate the firm’s eligibility based on present circumstances. DOT cited Section 26.73 § (b) (1) which states, “you must not refuse to certify a firm based on historical information indicating a lack of ownership or control of the firm by socially and economically disadvantaged individuals at some time in the past, if the firm currently meets the ownership and control standards of this part.”

Analysis:

This case is important because it shows how complaints by competitors can jeopardize a firm’s DBE certification especially when the agency with oversight fails to follow the DBE regulations. Here, while there were two issues that formed the initial bases for the decertification, MDT was only able to make a case for one: changed circumstances. And that issue was improper because the changed circumstances were temporary and had been rectified by the time the decertification hearing took place.

When the owner of Surveying Solutions, Inc., a DBE firm, passed away, majority ownership of the firm passed to non-disadvantaged individual and SSI lost its DBE certification. Subsequently, the owner of another DBE firm, GEO Precision Services (Geo) purchased SSI with the intent of making it a subsidiary of his firm.

For some reason, Michigan Department of Transportation (MDOT) took exception to this arrangement and removed the Geo’s DBE certification. The disadvantaged individual then dissolved Geo, transferred Geo’s assets to SSI and applied for DBE certification.

MDOT denied SSI’s DBE application for 1) failure to cooperate with the agencies requests for tax returns and lease agreements from two unrelated firms whose owners had familial ties with employees of SSI and 2) because MDOT alleged that the disadvantaged owner had only purchased SSI with the intent of applying for DBE certification in violation of 49 CFR § 26.71 which governs when a firm owned by a non-disadvantaged individual is purchased by a disadvantaged individual and the non-disadvantaged individual remains with the firm.

Holding:

DOT reversed MDOT’s decision because MDOT failed to show how the family ties between employees of SSI and the outside vendors affected the disadvantaged owner’s independence or control of the firm.

On the issue of transfer of ownership, DOT concluded that the record demonstrated the disadvantaged owner had purchased the company for reasons other than obtaining DBE certification.

Another important holding of this case (albeit in a footnote) is that MDOT improperly found lack of cooperation where the disadvantage owner failed to produce tax returns and other lease agreements from firms over which he had no control.

Analysis:

Interestingly, the events of this case starting with the death of the SSI’s original owner began in 2011 and concluded in 2015 when DOT rendered its decision. During that period it is unclear whether the SSI’s new owner ever sought the service of an attorney. It is clear that MDOT made errors besides the final error which resulted in the denial of certification. For example, MDOT’s objection to making one company the subsidiary of the other was likely improper but it doesn’t appear that the firm ever protested that decision. Nor was, MDOT’s decertification of the firm

In December 2013, the Indiana Department of Transportation (INDOT) denied a firm’s DBE application for several reasons. However, INDOT failed to properly articulate its reasons for denial. Instead, it appears INDOT ignored evidence provided as part of the application, failed to seek clarification regarding its concerns during the firm’s on-site visit and the period leading up to the denial letter and failed to articulate how it reached its decisions. Rather than reversing INDOT’s decision the DOT remanded the case back to INDOT urging the agency to drop at least one ground for denial and to articulate it reasons for the other grounds.

Holding:

Essentially, the DOT held that INDOT could not deny the firm’s application without providing a full explanation and analysis based on evidence contained in the record.

Analysis:

This case highlights the scrutiny that firms face when a disadvantaged individual acquires a company from a non-disadvantaged individual who maintains a relationship with the firm. Here, the disadvantaged owner appears to have met his burden of proving that the transfer of ownership was for reasons other than obtaining DBE certification and the disadvantaged individual actually controls the firm. Its surprising that DOT did not reverse INDOT’s decision outright considering the disadvantaged owner waited nearly two years for the appeal decision.

Kentucky Transportation Cabinet (KYTC) denied Walter Martin Excavating, Inc.’s for several grounds related to the female owner’s control of the firm. The firm was established in 1985 by the female owner’s late husband. When he passed away in 2005, she took over as majority owner of the firm. In 2011, she hired a non-disadvantaged individual as a Senior Manager to replace three managers she had fired during the Great Recession. KYTC argued that the Senior Manager was the person in control of the firm. DOT reversed KYTC’s denial for several reasons including KYTC’s failure to specifically reference the evidence in the record supporting KYTC’s conclusions.

Holding:

The case has a couple of important holdings. First, DOT made clear that “Mere reapplication is not itself an attempt to evade or subvert; arguably, it is an attempt to correct identified eligibility deficiencies.” Second, a disadvantaged owner is not required to control all aspects of the firm’s business, in order to prove control.

Analysis:

Unfortunately, women-owned businesses often face the type of scrutiny shown in this case. Although the owner had worked alongside her husband for years before assuming control of the firm and despite the fact that she had shown the ability to run the firm, the agency concluded that a non-disadvantaged male (who she hired) was somehow in control of the company despite all of the evidence to the contrary.